Slouching Towards Utopia?: The Economic History of the Twentieth
Century

-XIII. The Roaring Twenties-

J. Bradford DeLong

University of California at Berkeley and NBER

February 1997

Mass Production

Mass Consumption

Income Polarization

The end of World War I saw the United States retreat into
isolation. The Senate refused to ratify the Versailles Peace Treaty that
ended World War I. The U.S. failed to join the League of Nations--the international
organization that was the less-successful interwar predecessor of the United
Nations. The U.S. raised tariffs early in the 1920s (although not to levels
that appreciably discouraged imports). Most important, perhaps, the 1920s
saw he end of free immigration into the United States. Migration from Asia
had been restricted for several generations. Migration from Africa had
never been an issue. But up until the mid-1920s migration from Europe had
been unrestricted.

More than 1.2 million immigrants had come to the U.S.
in 1914. But once the immigration restrictions of the 1920s took effect,
the overall total was fixed at only 160,000 or so immigrants a year. Moreover,
different nations had different quotas. The quotas for immigrants from
northern and western Europe were more than ample for the demand. The quotas
for immigrants from southern and eastern Europe were very small.

The United States tried to pretend that the rest of the
world did not really exist. Its people turned inward, and they found that
they had plenty to do. For in the 1920s the United States became a modern
middle-class economy of radios, consumer appliances, automobiles and suburbs.
Nearly thirty million motor vehicles were on the road in 1929, one for
every five residents of the country. Mass production had made the post-World
War I United States the richest society the world had ever seen.

Mass Production

Begin with the "American system of manufactures."
In the middle of the nineteenth century English engineers viewing production
on the Western side of the Atlantic Ocean noticed some regularities in
the way Americans seemed to do things. Their manufacturing industries made
simpler and rougher goods, used much less skilled labor, and seemed to
incorporate much more of the knowledge needed to run the process of production
into machines and organizations--leaving much less in skilled workers'
brains and hands.

Some of this was simply economizing on the relevant margin.
In America skilled workers were exceedingly scarce, and it seemed worthwhile
to follow production strategies that used skilled workers as little as
possible. Some of this was finding new and more productive ways of
doing things: ways that would have been profitable for British, or
other manufacturers, even facing lower costs for skilled labor, to adopt.

Mass production, as it was developed in the United States
in the early years of the twentieth century, was the carrying of the American
system on to its logical extreme. Henry Ford planned large scale production
of his Model N in 1905 to reduce expensive skilled work to as small a part
of production as possible.

Ford minimized his costs by building a capital intensive
plant that was very good at building automobiles, and not for building
anything else. The increase in capital intensity increased the potential
risk. The productivity and profitability of the Ford plant depended
on a high rate of production. Anything that threatened the pace of production--union
strike or anarchist sabotage--threatened to be very expensive. Ford could
employ unskilled workers in jobs that had previously required highly skilled
craftsmen, but only if he kept his workforce happy.

Moreover, in "moving the work to the men" by
means of the assembly line, a second fundamental tent of mass production,
the Ford engineers found a method to speed up the slow men and slow down
the fast men.

This was, originally, an unintended benefit of mass
production: the factory considered as a machine would monitor the progress
of its human elements, and immediately signal where a unit was not accomplishing
its job satisfactorily by the buildup of work by that station--a process
undergone by Charlie Chaplin in Modern Times. The pace of work could
be increased. Unskilled workers could be substituted for skilled labor.
The task of management was made much simpler: the assembly line forced
the pace of the slower workers and made it obvious where bottleneks were
occurring. Fixed overhead costs were spread out over larger and larger
volumes of production, thus lower and lower prices became possible.

The same set of forces can be seen at work in other industries
as well. For example, Theodore N. Vail, President of American Telephone
and Telegraph, argued in the 1908 AT&T Annual Report that the
telephone business exhibited enormous economies of scale:"The
particular circuit connecting any subscriber with the exchange is what
might be termed a convenience to that particular subscriber, but a necessity
to all other subscribers. It is the ability to communicate with others
that makes the exchange valuable." The realization of these economies
of scale required the highest output, and the lowest practicible prices
to make sure that the output could be sold.

Vail distinguished two different competitive strategies:
"Net revenue can be produced in two ways: by a large percentage of
profit on a small business, or a small percentage of profit on
a large business." And in America the second was best:

...with a large population with large potentialities,
the experience of all industrial and utility enterprises has been that
it adds to the permanency and undisturbed enjoyment of a business, as well
as to the profits, if the prices are put at such a point as will create
a maximum consumption at a small percentage of profits."

This strategy--invest heavily in fixed capital, try
to produce the maximum output at low prices, and use the productive expertise
gained to forge technological leadership and lowest cost positions--was
to become characteristic of American industry throughout the twentieth
century. It was made possible because half of North America was the single
economic unit of the United States. With no obstacles to shipping commodities
off of state lines, the possibilities of benefitting from a low price-high
volume strategy were much greater than in Europe, especially in the interwar
years of active trade restrictions.

Motor Vehicle Production (Thousands)

Year

United States

Canada

France

United Kingdom

Germany

Italy

Czechoslovakia

Russia

1907

45

3

25

12

4

0

0

0

1913

485

15

45

34

14

2

0

0

1924

3504

135

145

133

18

35

2

0

1928

4359

242

210

212

90

55

13

1

1935

3971

173

165

404

240

44

10

97

In the labor history literature, the adoption of the American
system is often called deskilling. Knowledge of how to run the factory
and the production process is taken out of the hands of skilled craftsmen
and put into the hands of the managers and the machine makers. Jobs become
more boring and more alienating. And wages fall. Historians' accounts of
American industrialization often see the coming of mass production as a
fight between the process of deskilling, tending to lower wages and
make the distribution of income more unequal, and the process of unionization
and collective solidarity, which is seen as powerful enough in the end
to keep wages from falling.

But high wages for skilled craftworkers who have relatively
low productivity implies high prices--and relatively low standards of living--for
everyone else. By contrast, "deskilling" opens jobs that are
relatively high-paid (albeit not as high-paid as the original craftwork
jobs) to people who were outside the magic circle beforehand: unskilled
farm laborers, immigrants, minorities, and women now have more options
on the production side. Most important, higher productivity leads to lower
product prices--massively expanding options on the consumption side as
well.

And the deskilled, repetitive, assembly-line jobs were
not low-paying jobs.

Henry Ford would have been happy if he could have found
qualified workers for his assembly lines at low rates of pay. But he could
not. Work on Ford's emerging assembly line was brutal. Workers paid the
standard wages for unskilled labor at Ford's Detroit factory--a little
less than $2.00 a day--quit at astonishing rates. In one year, 1913, Ford
had an average annual labor force of 13,600 and yet 50,400 people quit
or were fired.

Ford's workers-sped--up, automated, short-term, alienated,
and about to quit--seemed obvious fodder for recruitment into the International
Workers of the World, and Ford's profits were very vulnerable to IWW-style
wildcat action.

Labor Force Separations and the Five Dollar
Day at Ford

Year

1913

1914

1915

Labor Force

13,623

12,115

18,028

Total Leaving

50,448

6,508

2,931

Annual Turnover Rate

370%

54%

16%

Resignations

39,575

5,199

2,871

Layoffs

2,383

385

23

Discharges

8,490

926

27

Ford's solution was a massive increase in wages: to $5.00
a day for unskilled workers whose family circumstances and deportment satisfied
Ford. By 1915 annual turnover was down to 16%, from 370% before the raise.
Many to whom Ford jobs had not been worth keeping at $1.75 a day found
the assembly line more-than-bearable for $5.00 a day. Many more linedup
outside the Ford factory for chances to work at what appeared to them to
be (and, for those who did not mind the pace of the assembly line much,
was) an incredible boondoggle of a job.

Ford became a celebrity, and a symbol. This man was using
the extraordinary productivity of modern manufacturing not (or not just)
to make a fortune for himself, but to instantly raise his unskilled employees
into the comfort of the middle class. Mass production, as some nameless
publicist began to call it, offered the prospect of a ride to utopia via
technology alone.

Was the five dollar day good business practice for Ford?
Or was his company so profitable that he could afford a few highly unprofitable
business practices and still flourish. There are two reasons why Henry
Ford might have gotten more than his money's worth out of the $5.00 day--gotten
more than an extra $3.25 a day of valuable work out of his employees in
exchange for their massive raises.

The first is that an inattentive or sullen worker could
disrupt a mass production assembly line and lose large amounts in profits.
Workers paid $5.00 a day when the prevailing wage at the next job they
would get was less than half that would be eager not to get fired. Higher-than-market
wages induce high effort, because the job becomes a valuable asset for
the worker. By tripling his workers' wages, the company could ask its workers
to become for eight hours a day a part of the production machine that the
Ford engineers had designed and refined. The five dollar day
assured the company that the essential human appendages to this machine
would always be present.

The second is that an assembly line is very vulnerable
to "direct action." It is easy to sabotage--a word derived from
the sabot, the wooden shoes of northern France and Belgium, that could
be thrown into the works and jam the textile machinery. Ford feared the
American Federation of Labor's more radical union competitor: the Industrial
Workers of the World. By raising the stakes that workers had at risk in
any shut down of Ford's operations, he made it less likely that strikes
and sabotage would hit his company.

The automobile and other products of mass production quickly
diffused throughout America. Manufacturers then faced a problem: once the
market had been saturated, replacement demand was lower than demand during
the rapid expansion of the market. Producers faced the problem of figuring
out how to add value to the product, so that consumers would not simply
"replace" but would "upgrade." Since you can't sell
them the good a second time, you have to to figure out some way to sell
customers an improved good.

This was a big problem for Ford.

If the Model T was supposed to be changeless, how
can the company use "improvement" as a selling point? "New
and improved" was perhaps the one advertising slogan that Ford could
not use-especially because Henry Ford adhered to changelessness for ideological
as well as production-based reasons. This became an especially knotty problem
because consumers did, it turned out, want novelty. They were willing to
pay a premium to have a car, not of their own, but a car not identical
to every other car on the street.

As the twentieth century passed, U.S. manufacturing turned
its skill to making differentiated products-not all the same-using mass
production. The first to do this was the management team, headed by
Alfred P. Sloan, at General Motors. Make the guts of the cars the same--that
is, sell to everyone as many Chevrolet parts, made in extraordinarily long
production runs to take full advantage of economies of scale. Put the guts
in differently colored boxes, and change the boxes--so that someone who
wants to stay up to date has to buy a new car relatively rapidly. Rely
on advertising to create different images and different auras surrounding
the different lines of cars.

Now it is natural to be of two minds about this surge
of product differentiation. It seems wasteful--sacrificing potential
economies of scale for diversity--and deceptive: Coca-Cola doesn't "really"
"add life," does it? Wearing celebrity-brand sneakers while listening
to one's walkman does not "really" bring one closer to the lifestyles
of rich and famous celebrities than does listening barefoot, does it? This
echoes George Orwell's complaint: that the cheap luxuries of the modern
world create the illusion that you have gotten something valuable and worthwhile
for your money. But in reality, as opposed to in front of the veil of illusion,
it just is not true.

The only real benefit to buying expensive brand-name
sneakers is that they give you explicit permission to dream certain dreams
and have certain fantasies. Yet dreams are, or should be, free: for the
mind is its own place, and can make a heaven of hell, or a hell of heaven.

On the other hand, product differentiation is popular:
consumers are happy to be able to order a blue car with a sunroof. Given
the immense wealth of the industrial economies, why not use some of it
to create more color and variety? The anti-utopias of the twentieth century,
from Modern Times to We, Brave New the World, and Nineteen
Eighty Four, terrify readers by picturing society as a colorless grey
inhumanity in which even the smallest of individual differences is removed,
and everything the same: mass-produced. To be able to achieve almost all
of the gains of mass production without imposing the cost of endless uniformity
may truly be a major achievement.

The diffusion of high-productivity "mass production"
industries from the rich industrial core to the poor periphery took place
surprisingly slowly. One would have thought that mass production industries
should have been vulnerable to foreign competition from other, lower wage
countries. If Ford can redesign production so that unskilled assembly line
workers do what skilled craftsmen used to do, why can't Ford also--or someone
else--redesign production so that it can be carried out by low wage Peruvians
or Poles or Kenyans rather than by Americans, who are extraordinarily expensive
labor by world standards?

Yett mass production diffused slowly even within the developed
world only. Ford's plants in Britain had difficulty obtaining even half
the labor productivity of Ford plants in the United States. There were
even difficulties in the diffusion of mass production throughout the
United States. Only one firm--General Motors--could even come close
to matching Ford's productivity levels in the 1920s and the 1930s. And
General Motors found its transition to mass production eased by its ability
to hire the production management team that had invented mass production
at Ford's Highland Park plant as its individual members, one after the
other, fell out of favor with Henry Ford.

Mass Consumption

The flip side of mass production was mass consumption:
the creation of America as a middle-class society, made up increasingly
of people living in suburban houses, and commuting and shopping using automobiles.

The speed with which the products of mass production diffused
through America was astonishing: not just automobiles but also washing
machines, refrigerators, electric irons, electric and gas stoves--a whole
host of inventions and technologies that greatly transformed that part
of economic life that takes place within the household. For one of the
major consequences of mass production was the building-up of the stock
of capital goods for within-the-home production.

As the historian Ruth Schwartz Cowan has written:

...kitchens are as much a locus for industrialized work
as factories and coal mines are, and washing machines and microwave ovens
are as much a product of industrialization as are automobiles and pocket
calculators. A woman who is placing a frozen prepared dinner into a microwave
oven is involved in a work process that is as different from her grandmother's
methods of cooking as building a carriage from scratch difers from turning
bolts on an automobile assembly line; an electric range is as different
from a hearth as a pneumatic drill is from a pick and shovel...

The incandescent light bulb was invented by Thomas Edison
in 1879. By 1882 New York city had its first central generating station.
By 1910 the alternating-current electric motor had become a low-cost provider
of mechanical power that could be made small enough to run a fan (or large
enough to power a locomotive). Eight percent of American households were
wired for electricity in 1907; 35 percent were wired by 1920; 80 percent
were wired by the beginning of World War II.

An important novelty lay in the rapid spread of a new
form of purchase: installment credit. The major consumer appliances had
long lifetimes, and relatively high prices. Businesses found that their
potential markets were much larger if they were willing to loan a large
portion of the purchase price to the consumer, for one or five years.

United States: Approximate Hours of Housework
per Week, 1900-1975

Year

Meals and Dishwashing

Laundry

General Cleaning

1900

44

7

7

1925

30

5

9

1975

15

1

7

One consequence of the consumer durables revolution was
to turn doing laundry from a task that took up nearly one full day a week
to a task that took up a considerably smaller share of time. But the biggest
changes in within-household production appear to have been the result of
the dishwasher and the modern stove, on the one hand, and the growth of
the food processing industry, on the other. They have cut the amount of
time spent on food preparation and cleanup by roughly two-thirds over the
past century.

Put the consumer durables revolution together with the
reduction in family size caused by the demographic transition, and modern
feminism becomes possible: keeping the household running is no longer a
more-than-fulltime task for an adult. However, the modern industrial world
could have further economized on "housework," but did not. Turn-of-the-century
feminists and utopians had anticipated communal kitchens; communal laundries;
cleaning done in an organized way by collective teams. Over the course
of the twentieth century a few steps were to be taken in that direction:
restaurants flourished, as did services that offered one or two days a
week of cleaning. But laundromats were reserved for those living in small
apartments. And restaurant meals remained a small part of meals eaten at
home.

More and more over the twentieth century, people in rich
industrial societies chose--or others in their households chose for them--private
life. What relative opulence bought was not further economizing on
housework, but rather more separation of the private from the social: houses
with lawns so that one did not have to hear the neighbors through the walls,
with their own washing machines, and with refrigerators and stoves capable
of storing and cooking an enormous variety of foods. No utilitarian social
planner would have allowed such a diversion of resources into infrequently-used
stoves, washing machines, and dining rooms. Indeed, in "institutions"--whether
army barracks, residential schools, prisons, or hospitals--utilitarian
social planners did not. Yet where they had the choice, the middle classes
in industrial economies cherished their suburban privacy, guarded it closely,
and sunk increasingly large sums into embellishing it.

Polarization

From the 1890s a substantial minority of Americans believed
that the country had somehow taken a wrong turn. There was little socialism
in the United States. Farmers feared the language of nationalization; immigrants
were too busy taking advantage of living standards twice or more those
of their relatives left behind in Europe; there was no entrenched landed
aristocracy to rebel against; the principal political demand of the socialists--a
free and equal vote--had been granted (for white males) since Andrew Jackson's
day in the 1830s.

Yet the feeling grew that Ameria was no longer an open,
equal society of potential mobility but a place where they were
in control.

"They control the people with the people's own money."
So Louis Brandeis, strong Democratic political activist, wrote of the turn
of the century financiers. He saw J.P. Morgan and company as controlling
the American economy, deciding which companies would flourish and which
companies would shut down, through their domination of the commanding heights
of finance.

There was reason for the progressives to worry. The rapid
growth of managerial enterprises, the rapid increase in the "optimal
scale" of continuous process manufacturing plants, and the realization
of economies of distribution together transformed many American industries
into oligopolies. When only a few firms dominated an industry, firms could
protect themselves against "cut-throat" or "ruinous"
competition either through collusion, or through mergers that would end
in monopolization. Naomi Lamoreaux has analyzed 93 turn-of-the-century
mergers of the American economy: 46% resulted in firms that controlled
at least 70 percent of their product's market.

In 1890 the American Congress passed the Sherman Antitrust
Act. But the Sherman Act did little to affect industial structure. In response
to antitrust judgments, a few companies--the Northern Securities Company,
and the Standard Oil Company of New Jersey, and a few others--were divided
into their subsidiaries. But industrial consolidation, oligopoly, and big
business run by managers became the rule in the manufacturing sectors not
just of American but of the British, the German, and other industrialized
economies as well..

Brandeis had relatively simple answers to the problems
of industrializing America. Regulation of hours and working conditions
to prevent bosses from exploiting workers' hunger for a job. Strong anticorruption
drives to clean up municipal governments. The separation of banking from
finance so that the bankers who collected the savings of the people through
the acceptance of deposits would be unable to use those savings to increase
their bargaining power vis-a-vis the managers of American enterprise.

It is doubtful that Louis Brandeis's proposed solution
was any solution at all. Large-scale businesses borrow from banks, true.
But remove some power to control and infiuence the managers of large-scale
enterprises that borrow from the bankers, and where does it go? It fiows
to the managers of the oligopolies and the monopolies that no longer have
to look over their shoulders to make sure that Wall Street is satisfied;
it does not fiow to the "people." Even before Brandeis's
program was put into effect in the 1930s, Adolf Berle and Gardiner Means
were warning of the unchecked and unaccountable power of the self-appointing
managers of large corporations.

But Brandeis's cure was a response to a real disease.
For the United States as of the turn of the twentieth century was a much
more economically and socially unequal place than it had been even thirty
years before.

On the eve of the American Revolution, the United States-to-be
had been a relatively egalitarian society. The richest one percent of households
owned perhaps fifteen percent of the total wealth in the economy-a
very low value for such an inequality statistic. Even by the immediae aftermath
of the Civil War wealth was still not that concentrated: the top one percent
of households appear to have had a little more than a quarter of the wealth
of the country.

By 1900, however, the U.S. had become the Gilded Age country
of industrial princes and immigrants living in tenements of our political
memory. On the one hand, Andrew Carnegie building the largest mansion in
Newport, Rhode Island with gold water faucets. On the other hand, 146 largely-immigrant
workers dying in the 1911 Triangle Shirtwaist Factory fire in Manhattan
because the exits had been locked to keep workers from taking fabric out
of the building for their own clothes.

Surveys suggest that in 1929 the richest one percent of
U.S. households held something like 45 percent of national wealth, and
that the concentration of wealth had been sharply rising in the 1920s.
We strongly suspect that World War I had seen substantial deconcentration,
as infiation eroded the value of bondholders' wealth and as high demand
for labor boosted workers' earnings. It is my guess that the second was
stronger than the first; that the concentration of wealth was eroded
more during World War I than it was boosted in the 1920s, and that the
concentration of wealth in the United States peaked sometime in the twenty
years before World War I, with the richest one percent of households owning
some 50% or so of total national wealth.

Attempts to count the wealth of the merchant princes themselves
reinforce the suspicion that the pre-World War I U.S. was more unequal
than at any time before or since. John D. Rockefeller was some eight times
richer relative to the wages of the average American of his day than William
H. Gates is today. (And Rockefeller was some twenty times richer relative
to the total size of the U.S. economy

A country of immigrants and plutocrats is very different
from the country of yeoman farmers that the United States had been in its
Founding Fathers' imagination, and in large part in reality, in the late
eighteenth century.Alexis de Tocqueville, a keen-eyed
commentator on American society in the first half of the nineteenth
century, had feared the growth of such a class of plutocrats, such an "aristocracy
of manufacturers":

The territorial aristocracy of past ages was obliged by
law, or thought itself obliged by cutom, to come to the help of its servants
and relieve their distress. But the industrial aristocracy of our day,
when it has impoverished and brutalized the men it uses, abandons them
in time of crisis to public charity to feed them.... Between workman and
master there are frequent relations but no true association.

I think that, generally speaking, the manufacturing aristocracy
which we see rising before our eyes is one of the hardest that have appeared
on the earth....

In the United States the rising concentration of wealth
provoked a widespread feeling that something had gone wrong with the country's
development. The rich (and many of the native-born not-so-rich) blamed
foreigners: aliens born in China, Japan, Italy, Spain, Poland, and Russia
who were incapable of speaking English, or understanding American values,
or contributing to American society. Many of the middle class, especially
the farmers, blamed the rich, the easterners, and the bankers. The Populists
of the 1890s blamed the eastern bankers and the gold standard. The Progressives
sought reforms to try to diminish the power of what they saw as a wealthy-would
be aristocracy.

But the Populists and the Progressives remained minority
political currents in America until the coming of the Great Depression.
In the meantime, the voters continued to elect Republican presidents who
were more-or-less satisfied with American economic and social developments,
and who believed that "the business of America is business."
The United States did very well at business in the 1920s. Industrial production
in 1929 was nearly twice what it had been in 1913.

The managers who ran Americas firms and the politicians
who got elected were not oblivious to the Progressive challenge. Scared
of what unionization or a shift to left-wing politics might bring, and
concerned about the welfare of their workers, American business in the
1920s developed "welfare capitalism." Social-work professionals
employed by the firm provided counseling and visited the homes of workers.
Businesses offered stock-purchase plans to help workers save for retirement,
and insurance: sickness, accident, and life insurance.

Welfare capitalism appears to have worked as long as relative
prosperity continued: the welfare of workers covered rose. Welfare capitalism
appears to have worked for the bosses as well: the 1920s saw rapid erosion
of union membership in the United States. But when the Great Depression
came, the availability of the Populist and Progressive agendas made the
shift in American politics in response to the depression rapid and substantial.

from Bryan, Bryan, Bryan, Bryan

by Vachel Lindsay

I brag and chant of Bryan, Bryan, Bryan,
Candidate for president who sketched a silver Zion...
There were truths eternal in the gab and tittle-tattle,
There were real heads broken in the fustian and the rattle,
There were real lines drawn;
Not the silver and the gold,
But Nebraska's cry went eastward against the dour and the old,
The mean and the cold....

Oh, the longhorns of Texas,
The jay hawks from Kansas,
The plop-eyed bungaro and giant gassicus,
The varmint, chipmunk, bugabo,
The horned-toad, prarie-dog, and ballyhoo,
From all the newborn state arow...

And all these in their helpless days
By the dour East oppressed,
Mean paternalism
Making their mistakes for them,
Crucifying half the West,
Till the whole Atlantic coast
Seemed a giant spider' nest....